Waterfall DeFi

Waterfall Defi, a platform that offers true risk-adjusted yield through tranching. The platform slices a portfolio of DeFi assets into different risk-adjusted return tranches. These tranches would enable both risk-averse and high risk-tolerance investors to generate expected returns from the same set of DeFi assets.

Waterfall DeFi tranches are structural investment products that package a pool of yield-generating DeFi assets and slices them into different buckets known as “tranches”. Each tranche is classified based on its seniority and has its own set of unique expected yields, risk and maturity.

The cash flows generated from the underlying yield-generating assets are paid out in a waterfall manner where the senior tranche is paid first and the junior tranche is paid the last. This also includes the adverse scenario where a capital loss is incurred on the invested principal, same waterfall manner of capital distribution will be utilized where the senior tranche would be paid first and the junior tranche would be paid last.

In exchange for taking on the higher-risk, the junior tranche is rewarded with a portion of yields from the senior tranche leading to high leveraged returns.

Essentially, the junior tranche would be subjected to the highest risk and hence would be earning the highest yield while the senior tranche would be safest at the cost of lower yield.